Bond yields rise, Re gains 54 ps

ET BureauJul 21, 2009, 02.58am IST

MUMBAI: Government bond yields rose on Monday, ahead of Friday's Rs 12,000-crore bond auction. The benchmark 10-year yield rose eight basis points from its previous close to trade at 6.91%, as traders sold securities to free up cash for the next auction. When yields rise, prices fall.

Last week, RBI announced that out of the next 10 auctions, seven will raise Rs 12,000 crore for the government while there will be three other auctions of Rs 11,000 crore, Rs 8,000 crore and Rs 7,000 crore each. This week, the government will sell securities worth Rs 12,000 crore.

"Despite the borrowing programme being 1.5 times that of last year and 3 times of FY08, we expect yields to remain range-bound with the 10-year benchmark likely to be capped at 7.5%," said Rohini Malkani, senior economist with Citigroup. "However, a rating downgrade poses risks," she warned.

The rupee ended at 48.21 versus the dollar against its previous close of 48.75, with the greenback trading weak against major currencies. This was before a US report that economists expect a rise in the index of leading economic indicators.

The demand for safer assets like the dollar reduces when analysts feel the economy is going to recover. The dollar index — the gauge of the dollar's movement against six major currencies — was down 0.6% by late evening.